Market Spotlight: SPACs take off

By Merlin Piscitelli, Chief Revenue Officer, EMEA

Special purpose acquisition companies (SPACs) were without a doubt one of the biggest headlines in the corporate finance world in the past 12 months. This once niche area has become mainstream, with 256 SPAC listing globally in 2020, raising a total of US$83.5bn – a massive increase on the 73 such listings in 2019 worth US$15.5bn, according to Dealogic. Although this was a huge year-on-year leap, the first quarter of 2021 has already overtaken that activity – just in that quarter alone, there have been 304 SPAC listings, raising a total of US$90bn.

A SPAC – or blank check company – is a shell company that lists on a stock exchange with the aim to raise money to acquire a company that is looking to go public. Once listed, the SPAC typically has two years to find a target. The asset class’s growing popularity is fueled in part by investors’ search for value amidst rock-bottom interest rates and because reserve mergers with SPACs allow businesses to become publicly listed more easily than through a traditional IPO.

Seeking EMEA targets
The majority of the listings so far have taken place on US exchanges, but with so much cash to spend, SPACs are looking abroad for good acquisition targets. The first quarter of 2021 saw 12 announcements of SPACs acquiring EMEA-based firms – more than in the entirety of 2020, which saw 11 such deals. Not only that, the total value of those deals in Q1 2021 was US$46.4bn, nearly double the US$24.9bn over the course of 2020.

SPACs are especially popular with fast-growing technology companies. The largest of these was the US$10bn merger between Thoma Bravo Advantage, a SPAC set up by US-based private equity firm Thoma Bravo, and ironSource, an Israeli firm that provides a platform to help app developers with monetization. As part of the merger, the company will also receive PIPE (private investment in public equity) investment of US$1.3bn from a group of investors including Morgan Stanley and Tiger Global Management.

eToro, a UK-based investment and trading platform, was another technology firm that agreed a merger with a US-based SPAC, FinTech Acquisition Corp V, in a US$9.8bn deal. The deal will also see US$650 million in PIPE investment.

With so much capital to spend, SPACs are bound to keep looking at businesses in the EMEA region as potential targets and could find many such targets receptive to offers – the region has struggled with less access to investment capital compared to US-based startups, despite highly skilled talent and a strong entrepreneurial spirit. The emergence of SPACs could transform these dynamics.